Japan Machinery Orders Unexpectedly Fall In May

By IBT Staff Reporter On 07/08/09 AT 4:51 AM

RTTNews - Japan's machinery orders unexpectedly fell for the third month in May to record an all-time low value, official data showed Wednesday.

Machinery orders fell 3% month-on-month to JPY 668.2 billion in May, the Cabinet Office said in Tokyo, signaling a continued slowdown in business activity as companies curtail capital spending. The value was the lowest since comparable data became available in April 1987. Meanwhile, economists had forecast an increase of 2% in May after declines of 5.4% in April and 1.3% in March. On an annual basis, orders were down 38.3%.

The Japanese government also said it expects machinery orders for the April-to-June quarter to fall by 5.6%.

Japan's machinery orders are a measure for companies' investment plans for the next three to six months. The continuing fall in orders suggests that firms are still facing difficulties to cope with the recession. The sluggish economic condition is expected to force the Bank of Japan to extend its emergency measures for some more time, beyond their expiration in September.

Orders from manufacturers rose 5.4% in May following a 9.4% contraction in April, while orders from non-manufacturers fell for the third month by 6.9%.

Though orders from manufacturers are modestly reviving thanks to exports and production picking up on the back of inventory liquidation at home and abroad, the overall level for this sector's orders remains extremely low and this situation is unlikely to change anytime soon as manufacturers are saddled with overcapacity that cyclical factors alone cannot undo, BNP Paribas economist Azusa Kato said.

Non-manufacturers, on the other hand, are still feeling the adverse consequences of the collapse last autumn of manufacturing, as curbs on business spending and deteriorating employment/income conditions undermine sales to the detriment of capital investment, the economist said.

Another report on Wednesday showed that bankruptcies in Japan rose quickly in June. According to the Teikoku Databank Ltd, there were 1,294 cases in June, up 21.5% year-on-year and faster than the 6.3% increase recorded in May. During the first half of the year, bankruptcies increased 16.6% to 7,023 cases. Separately, the Tokyo Shoko Research Ltd. reported that the corporate bankruptcies increased 7.4% year-on-year to 1,422 cases in June.

In addition, on Wednesday, Japan's Finance Ministry said the current account surplus fell 34.3% year-on-year to JPY 1.3 trillion in May. That was led by sharp declines of 42.2% in exports and 43.9% fall in imports compared to the previous year.

The export-driven economy fell into recession in the second quarter of 2008 as the global economic crisis reduced demand from across the globe. In the first quarter of this year, gross domestic product or GDP fell at an annualized pace of 14.2%, the biggest fall on record. Given, the improvement in some of the leading indicators, the economy is expected to recover in the second quarter.